Netflix (NFLX) has a critical week ahead of it.
Fresh off of the success of Stranger Things 4, which is shaping up to be the streamer's biggest television hit ever, Netflix is scheduled to release its latest quarterly earnings results on Tuesday.
In the first quarter, the company reported that it had lost subscribers, the first time that had happened in over a decade. That announcement sent shares of the company tumbling (down 70% year to date) with no sign of relief for investors.
Netflix may have already taken some of the sting out of the upcoming report, after the company announced that it expects to lose another 2 million subscribers in the spring quarter.
In May, Netflix laid off 150 employees, including executive-level employees at its Drama Series, Spectacle and Event TV, and Comedy Series Divisions.
Then in June, the company laid off an additional 300 employees, representing about 3% of its total headcount.
Netflix is preparing to launch an ad-supported version of its service, a move the company has repeatedly resisted in the past.
Netflix Switching Behaviors
Millions of Netflix subscribers who are leaving the platform, but they aren't turning off their televisions.
Antenna, a subscriber measurement company, identified a "significant increase" in Netflix cancellations, leading the firm to ask the question: 'are other subscription services benefitting from this churn'?
Antenna's data showed that every premium subscription video on demand (SVOD) service saw an increase in recent Netflix churners who subscribed to their service.
In the first quarter, premium SVODs like HBO Max, Disney+, Paramount+, Hulu, Apple TV+ and others saw an over 35% sequential increase in new subscribers who had cancelled Netflix in the past month.
Paramount+, HBO Max and Peacock had the highest growth rates, each having over 70% sequential increases in former Netflix subs. Stars, Hulu and Showtime saw the most modest increases in sign-ups from recent Netflix churners.
In 2019, almost half of Netflix cancelers who switched to a new service chose Disney+, by the first quarter of 2022, Disney+ accounted for only 16% of those switches.
The truth is Netflix and Disney+ have a load of new services competing for the same piece of subscription and viewership pie.
"This increasingly diverse make-up of the services Netflix’s switchers are choosing reflects the broader shift in market dynamics for the streaming industry: while streaming continues to grow, a more competitive set of offerings is resulting in more dynamic consumer preferences," Antenna researchers said.
Netflix Important Tech Choice
Netflix is working to develop an ad-supported service to help offset its slowing subscription business.
The company made the announcement earlier this year after a big earnings disappointment hit shares hard.
Last week, Netflix said its partnering with Microsoft (MSFT) to develop the new service.
Netflix chose Microsoft because it has the "proven ability to support all our advertising needs as we work together to build a new ad-supported offering," Netflix Chief Operating Officer Greg Peters said in a blog post on Wednesday. The companies both made announcements on their websites.
Another reason Netflix picked the internet giant is because of its technology and sales offerings while providing privacy protections.
No start date was announced for the new tier that will be cheaper than its current options.
“It’s very early days and we have much to work through,” Peters said. “But our long-term goal is clear: More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life.”
